Iraq-Iran in oilfield dispute

Khafaji said Baghdad had taken no military action against the Iranian troops and would seek a measured, diplomatic response to the situation.

"We are awaiting orders from our leader," he said.

"This well is located on Iraqi land, 300 metres inside Iraq. It is disputed between Iran and Iraq. There was an agreement between the two countries' oil ministers to fix this problem diplomatically."

It was not clear whether the Iranian troops were believed to still be at the oilfield.

Emergency meeting

Nuri al-Maliki, the Iraqi prime minister, held an emergency meeting of the national security council on Friday to discuss the situation.

"The Iraqi president called for an emergency session to discuss what they a describe a violation from Iran, but nothing came out of the meeting and whatever actions they are going to take are still not clear," Al Jazeera's Mosab Jasim, reporting from Baghdad, said.

Jasim said that the Iranians could have been reacting to an increased Iraqi military presence in the al-Fakkah oilfield.

Colonel Peter Newell, a US military spokesman in Iraq, said that such incidents were not uncommon in the area.

"What happens is, periodically, about every three or four months, the oil ministry guys from Iraq will go ... to fix something or do some maintenance. They'll paint it in Iraqi colours and throw an Iraqi flag up.

"They'll hang out there for a while, until they get tired, and as soon as they go away, the Iranians come down the hill and paint it Iranian colours and raise an Iranian flag.

"It happened about three months ago and it will probably happen again."

Oil reserves

The Fauqa oilfield, which has estimated reserves of 1.55 million barrels, was unsuccessfully opened for tenders from international oil firms in June.

The price of US crude rose to around $74 a barrel as news of the incident emerged.

"The Iraq-Iran issue is bringing some nervousness in the market but I think there is a very high possibility that there is nothing in the story," Eugen Weinberg, an oil analyst at Commerzbank in Frankfurt, said.

"If there is some sort of conflict then the price reaction is too small but if it is nothing the reaction is too high."